Low pay and the National Living Wage: why employers should do more than the minimum

Recent research revealed that 5.6 million people earned less than the wage they needed to meet their everyday basic needs last year.

This is the same number of people struggling as the previous year – despite attempts by the government to close the cost of living gap through the introduction of a higher minimum wage for over 25 year olds. The government’s ‘national living wage’ led to a significant pay rise for many employees, but it is not calculated according to what people need to make ends meet. At £7.20, it is lower than the real Living Wage – independently-calculated based on the best available evidence about the cost of living and currently set at £8.45, and £9.75 in London.

The Living Wage campaign is also about encouraging employers to do more than simply abide by the law. It recognises the leadership of responsible employers who voluntarily take a stand by ensuring their staff earn a real Living Wage that meets the cost of living, not just the government minimum.

Today nearly 3,000 employers have joined the Living Wage movement. This includes almost a third of the FTSE-100 and household names from Nationwide, National Grid and National Express Bus Group to the British Library, the Houses of Parliament, and Chelsea and Everton football clubs. In recent years the campaign has seen a major breakthrough in low paying sectors – with well-known retailers Majestic Wine, Oliver Bonas and IKEA signing up.

These employers choose to pay the real Living Wage because of a commitment to supporting a better quality of life for their employees. Employees earning the real Living Wage are by no means rich. But for many families it can mean the difference between struggling to get by on the government minimum and being able to cover basic needs such as heating their homes and travelling to work. Parents talk about being able to afford little extras like buying a birthday present or setting up a savings account for their children.

Many Living Wage employers also report significant business benefits, including improvements in employee engagement and quality of work, staff turnover and absence rates, and their standing among customers who recognise them as part of a leading group of ethical brands.

The business gains are often most dramatic in the lower paying service sectors – challenging the traditional view that success in these parts of the economy inevitably comes at the expense of jobs, security and living standards for employees. Current debates about the rise of the ‘gig’ economy – and, indeed, the impact of the government’s ‘national living wage’ – often suggest that there is an inevitable trade-off between business success and employee wellbeing.

But businesses have choices about how to compete in every sector. Employers that maximise the benefits of paying a Living Wage see it as part of a wider cultural transformation that puts employees at the heart of how they succeed in the modern economy.

When the bar chain and brewery BrewDog decided to move to a real Living Wage in 2014, for example, they also increased managerial pay, abolished zero-hours contracts, and invested in training and progression routes. Within six months the company saw a 50% improvement in employee satisfaction with pay. Staff turnover fell by 40% across their retail sites and 80% of managerial positions are now filled by internal promotions. Recruitment costs have fallen dramatically as a result, and the company has grown rapidly, from 300 staff in 2014 to 540 in 2016.

The Living Wage Foundation is the organisation at the heart of the independent movement of businesses, organisations and individuals that believe a hard day’s work deserves a fair day’s pay. Last year we published a Good Jobs Toolkit setting out how employers in retail, hospitality and other service sectors can pay the Living Wage and maximise the benefits, based on insights from leading Living Wage employers and international evidence about highly successful companies that combine low prices with high investment in employees.

The key lesson is the combination of operational excellence and investment in staff. Many of these companies are extremely efficient. They work hard to minimise operational complexity, reduce waste, and ensure consistency across their sites. The savings enable them to invest in decent wages and stable schedules, which mean they can attract and retain good people. Training ensures consistency across sites and enables managers to deploy staff flexibly according to business needs. And an engaged workforce can provide insights to ensure that operational and service standards are responsive to changing demand.

Crucially, these employers do not see a trade-off between employee wellbeing, customer satisfaction and business success. For Living Wage employers, an engaged workforce, motivated and trained to perform to the best of its ability, is the key to improving operational efficiency and customer service, which in turn drives customer loyalty, sales and profits.

More importantly, if more employers voluntarily paid the real Living Wage, fewer people would struggle to make ends meet.

By Tess Lanning, Head of policy and business development at the Living Wage Foundation.